“You need three things: a lawyer, an accountant, and us.” — Michael Richards, SVP Fund Accounting
When starting an Opportunity Zone Fund, expert third-party fund administration can help with everything from attracting investors to complying with mandated reporting. However, a fund administrator isn’t the only service provider you’ll need.
If you’ve wondered what exactly a fund administrator does, you’ve come to the right place. Here’s a rundown of the capabilities of NES Financial’s fund administration and the roles that other providers play on the perfect OZ team.
What an OZ Fund Administrator Provides
- Investor onboarding. In the document review stage, we vet individual investors to make sure they’re not prohibited from investing by anti–money laundering (AML) or combating financial terrorism (CFT) laws. We process their documents, run all necessary background checks, and then accept them into the fund following completion of their subscription agreements.
- Fund accounting. We handle the investment into the various securities the fund chooses, while also tracking all expense accruals. We generate a quarterly valuation of the fund and distribute these financial statements to investors, so that all fund activity is transparent to all stakeholders.
- Audit and financial statements support. At the end of each year, our team drafts all the financial statements and passes them to the audit firm, which provides an opinion on their accuracy. We support the audit from end to end until we get a clean audit opinion back from the audit firm. (For a deeper look into this process, see here: “Ending the Year Right: 8 Ways NES Financial Helps Private Equity Funds with Their Annual Audits.”)
- Tracking and reporting to the Treasury. We stay on top of all reporting requirements to make sure your fund complies with all laws and investors are able to realize OZ tax benefits. The specific requirements are still evolving, but our reporting capabilities already exceed certain standards.
- Investor transparency and communication. Our proprietary NES Financial Portal offers your investors 24/7 access to all relevant documents and fund status, from any device. Individual logins and inboxes mean the Portal doubles as a communication tool — so you and your investors are always on the same page.
What an OZ Fund Administrator Can’t Provide
- Legal advice. Your OZ Fund will need to hire a law firm to draft the partnership or limited liability company agreement and associated documents. We discuss these documents with our clients, and we provide them with industry trends and best practices and provide suggestions on how to solve common problems. This can help funds interact with their lawyers more efficiently.
- An audit opinion. NES Financial can generate all the paperwork associated with an annual audit, but the final opinion can only be provided by an accounting firm. Due to independence rules, an auditor (accounting firm) is not able to actually do the books and records of the fund and/or produce the financial statements. All that they’re allowed to do is to audit and review — and provide an opinion on — the financial statements that are provided to them. Hence the reason why, complementary to each other, your fund will need both an administrator and an accounting firm.
The Right OZ Team
- Fund administrator
These three complementary roles cover the full range of third-party assistance your fund will need.
But what about the possibility of in-house fund administration?
“Somebody has to do the work,” says Michael Richards, NES Financial’s Senior VP of Fund Accounting, “and an Opportunity Zone Fund is not your average private equity fund — there are evolving program-specific reporting requirements that require careful attention. So, the question fund managers need to ask themselves is: Can we handle all of the bookkeeping, tracking and reporting ourselves? Do we have the capacity and the systems to do it?”
In addition to the regulatory requirements specific to Opportunity Zones, which are still being developed, OZ Funds are required to keep full books and records, based on US GAAP, of the fund and all of its activities.
“It may seem like a simple task,” Richards says, “but there’s a lot of accounting and record keeping that needs to be done for the duration of the fund — and in the case of an Opportunity Fund, by definition, that’s 10+ years.”
If you’d like more information on Opportunity Zone Fund Administration, please take a look through our web-based OZ resource center — or feel free to contact us at 1-800-339-1031.